What Really Kills Great Companies: Inertia

By Gary Hamel

In most organizations, change comes in only two flavors: trivial and traumatic. Review the history of the average organization and you’ll discover long periods of incremental fiddling punctuated by occasional bouts of frantic, crisis-driven change. The dynamic is not unlike that of arteriosclerosis: after years of relative inactivity, the slow accretion of arterial plaque is suddenly revealed by the business equivalent of a myocardial infarction. The only option at that juncture is a quadruple bypass: excise the leadership team, slash head count, dump “non-core” assets and overhaul the balance sheet.

Why does change have to happen this way? Why does a company have to frustrate its shareholders, infuriate its customers and squander much of its legacy before it can reinvent itself? It’s easy to blame leaders who’ve fallen prey to denial and nostalgia, but the problem goes deeper than that. Organizations by their very nature are inertial. Like a fast-spinning gyroscope that can’t be easily unbalanced, successful organizations spin around the axis of unshakeable beliefs and well-rehearsed routines—and it typically takes a dramatic outside force to destabilize the self-reinforcing system of policies and practices.

Let me return, for a moment, to the topic of my last post, organized religion. What are some of the inertial forces that have prevented churches from reinventing themselves in ways that might make them more relevant to a post-modern world? A partial list would include:

–Long-serving denominational leaders who have little experience with non-traditional models of worship and outreach.

–A matrix of top-down policies that limits the scope for local experimentation.

Believers, rather than curious skeptics, are the church’s primary constituency.

Going to church is the primary manifestation of a spiritual life.

Church is a lecture not a discussion.

If organized religion has become less relevant, it’s not because churches have held fast to their creedal beliefs—it’s because they’ve held fast to their conventional structures, programs, roles and routines. The problem with organized religion isn’t religion, but organization. In the first and second centuries, the Christian church was communal, organic and unstructured—a lot like the Web is today. It commanded little power (it couldn’t raise an army or depose a monarch), but had enormous influence. (The Christian church grew from a handful of believers in AD 40 to 31 million adherents by AD 350, roughly half the population of the Roman empire. ) Today many mainline denominations are institutionally powerful, but spiritually moribund—at least in the U.S.

What’s true for churches is true for other institutions: the older and more organized they get, the less adaptable they become. That’s why the most resilient things in our world—biological life, stock markets, the Internet—are loosely organized.

To thrive in turbulent times, organizations must become a bit more disorganized—less buttoned down, less uptight, less compulsive, less anal.

As a start, you’ll need to become more alert to the things that reflexively favor the status quo in your own organization. While no one’s going to stand up and say, “I’m on the side of inertia,” they may nevertheless defend management processes that reflexively favor the status quo.

All of the things that allow little organizations to grow into big ones—scale, learning effects, and accumulated expertise—are products of repetition. When the environment changes, however, the returns to repetition start to diminish. Problem is, old habits die hard, particularly when they’ve been hardwired into a company’s management processes.

–Hiring criteria that over-value “expertise” and under-value diverse life experiences.

–Decision-making bodies that are comprised mostly of long-serving industry veterans who tend to discount new views.

–Highly conservative budgeting criteria that starve unconventional projects of resources by demanding near certain returns, even when the funds involved are modest.

–A single approval track for new projects, where every new idea has to go up the chain of command.

–Large, monolithic organizational units built around a single, dominant, business model.

–A highly optimized but inflexible IT infrastructure.

Large organizations don’t worship shareholders or customers, they worship the past. If it were otherwise, it wouldn’t take a crisis to set a company on a new path.

The most extreme version of organizational inertia comes when those within a company are no longer able to distinguish between form and function—when their instinctual loyalty is to the “how” rather than the “what.”

If one didn’t know better, it would be easy to believe that a lot of newspaper publishers have been more committed to producing broadsheets than to delivering the news in a convenient form, or making it easy for advertisers to connect with customers.

Until recently, music companies seem to have been more committed to stamping out plastic discs than to giving their customers easy access to their favorite tunes.

Many drug companies seem a lot more interested in peddling temporary palliatives for chronic conditions than in eradicating disease.

For years, Kodak seemed more focused on making film than on leveraging new digital technologies that would make photography simpler and cheaper.

Alzheimer’s, arteriosclerosis and arthritis—these seem to be the inevitable byproducts of old age. But must organizational maturity bring a similar set of maladies? I don’t think so. Despite all the evidence to the contrary, I think a company can truly be “Forever 21.”

In my next couple of postings I’ll give you the Cliff Notes version of the book I’m too busy to write: ”Ever Young: How to Keep Your Company Flexible, Vital and Impertinent.”

Until then, a question: What are the most powerful inertial forces in your organization? And what could be done to counter them?

I couldn't help linking the essence of this piece to the two major political parties contolling legislative matters throughout the country. Talk about being linked to paradigms of the past that no longer are relevent in contempory times, this parallel shouts out for change-real change, not just the rhetoric of the past election.

12:28 am November 19, 2009

Dr Mike Ashby wrote :

Susie's point is apt: success is the biggest trap of all because it is positive feedback which reinforces the correctness of our strategic choices. And when inertia is combined with myopia, we have management unable/unwilling to see much beyond the evidence of success and unable/unwilling to let go of that success - if it ain't broke etc. Sticking to your knitting is fine as long as the world wants woolens. The problem starts when the world starts thinking it looks better in lycra. Most dinosaur companies either dismiss the trend or believe there will always be a market for woolens because they've got such a strong personal interest and emotional attachment to the status quo.

I work with small companies, and I can tell you that they're exactly the same. In some ways it's worse, because at least in corporates there are mechanisms that occasionally work along the lines Prof Hamel suggests. Most small business owners are too risk averse to do anything until they have to. If you can smell smoke and your feet are getting hot, be prepared to realize that you're standing on a burning platform.

Just lately I've been reflecting that, unfortunately, the hardest thing is the one that offers the greatest possibility of breakthrough. This is true at both a business and personal level. See http://www.nbcoach.co.nz

9:30 pm October 15, 2009

Susie Wee wrote :

What are the most powerful inertial forces in your organization? SUCCESS. Achieving success inherently creates inertia around the organizations, processes, and behaviors that created that success.

What could be done to counter them? Be aware of this and make sure you do not to over-invest or over-focus on that one model. Instead, make a conscious effort to balance your resources between what made you successful to date and what will make you successful in the long run. This is easy to say, but not so easy to do, as it takes discipline and sustained effort.

3:52 pm October 14, 2009

Peter Stevens wrote :

Hi Gary,

I think organizational sclerosis sets in when the company is no longer getting effective communication between operational staff and top management.

About Gary Hamel's Management 2.0

Gary Hamel is a management author and consultant. His books include “Leading the Revolution,” “Competing for the Future,” and “The Future of Management.” He’s a visiting professor at London Business School and director of the Management Lab.